China introduced a new vape tax that went into effect on 1st November 2022. Beginning the effective date, Chinese businesses are required to pay 36% of the cost of producing or importing vaping products as tax to the government. Furthermore, businesses will pay an 11% tax for the distribution of the products in the country. All these taxes are part of the government’s effort to limit the sale and use of vaping products in the country.
In the recent past, the government has been working to restrict the distribution of vaping products in China. Prior to the introduction of the Vape tax, the government passed a new law banning the use of 122 flavours in vaping products. Sponsored by the State Tobacco Monopoly Administration (STMA), this law signified the first major step the government was taking to limit vaping in the country. This law banned many alcohol and fruit flavours. In addition, it requires businesses involved in the manufacture and sale of vaping products to be licensed by the tobacco authority.
Today, Local vaping manufacturers must meet a strict set standard. For this, these companies are required by law to get additional licensing. This has limited the product and sale of vaping products in the country. This does not come as a surprise to many as the government has been working to make sure that products that may harm the citizens are not freely available in the country.
Chinese Vape Brands Record Huge Losses
Due to the increased restrictions, many in the Vaping Business say that Chinese vaping brands have suffered huge losses in the recent past. Many of the local manufacturers have faced many financial and legal problems in the recent past. For example, in 2021, the RLX share prices collapsed to the lowest and many foreign shareholders filed a lawsuit against the company’s management in a USA court. The shareholder accused the Chinese vaping giant of not informing potential shareholders of the changing regulatory climate in China when the company floated it’s Initial Public Offering (IPO) in the USA in 2020.
This case against RLX technologies was filed by Alext Garnett in the Southern District of New York’s US District Court. As an investor Alext Garnett says that he and many other American investors who bought shares at the IPO price of $27.87 have sustained unimaginable financial damage in connection with their investment in the company. He says being one of the largest players in the vaping industry in China the company has suffered huge losses in the recent past due to the restrictions on vaping in the country. This has directly impacted foreign investors who made investments during the IPO.
According to a publication in ECigIntelligence, Garnett believes that the management of RLX technologies misled potential investors by not telling them about the tightening regulations in China. The IPO prospectors looked at many risk factors but did not mention China’s ongoing effort to regulate the manufacture and sale of e-cigarettes. This he says has had the largest impact on the company and has affected all the shareholders who participated in the IPO.
